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Morrison’s lazy fiscal policy

Rather than trying to build on the recent great news on the fall in the unemployment rate, Treasurer Scott Morrison is lazily implementing fiscal policy with a few little spending adjustments here and there.

The reality is Morrison is rejecting the recent run of great news on the labour market which has seen the unemployment rate unexpectedly drop to 5.8 per cent by framing a budget that delivers higher unemployment.

At the same time, the Treasurer is aloof in overseeing a free-fall in private sector business investment, with no policy changes that will arrest what looks to be the weakest performance for new private sector capital expenditure in more than 50 years. A more thoughtful and activist Treasurer would have used the budget update and the policy levers at their disposal to put in place policies to arrest the collapse in investment and take advantage of the surprising fall in unemployment to lock in those gains and deliver yet lower unemployment in the year ahead.

But not Morrison.

In the mid year economic and fiscal update, which incorporates the current spending and taxing policies of the Turnbull government, Morrison is forecasting the unemployment rate to rise back to six per cent by June 2016 and for it to stay at that elevated rate until June 2017.

Only in June 2018, two and a half years from now, has Morrison forecast the unemployment rate to dip below six per cent, with a forecast of 5.75 per cent. Disappointingly, this is exactly where it is today.

No progress on jobs, is the economic message from Mr Morrison meaning that for the next few years, around 750,000 to 800,000 Australians will be unemployed.

On business investment, which fell a hefty 6.3 per cent in 2014-15, the latest forecasts are for a further fall of 9.5 per cent in 2015-16 and yet another four per cent fall in 2016-17, both forecasts have deteriorated since former Treasurer Joe Hockey delivered his last budget in May despite low interest rates from the Reserve Bank and the super low Aussie dollar which should be improving the business environment in Australia.

The mid year budget update was poorly framed in terms of what should be the key priorities of government policy – jobs, lower unemployment and business investment.

The government under Prime Minister Turnbull has a slogan of “jobs, saving and investing” for its approach to economic management, but the mid year update see it delivering a higher unemployment rate than we have today and business investment falling at a recession-like pace.

This disappointing economic news is being framed against a backdrop of decent global economic growth and what will be three straight years of booming export volumes.

There is good news too with solid growth in household consumption and two more years of strength in the dwelling sector. The missing links in the outlook presented by Mr Morrison are business investment and a lower unemployment rate. It is a long five months until the budget in May 2016.

We can still hope that that will see a more thoughtful implementation of fiscal policy that is able to underpin better news on business investment and the unemployment rate.